With the collapse of the Transpacific Partnership (TPP), of which it was tipped to be the biggest beneficiary, Vietnam is counting on a trade agreement with the European Union to diversify the country’s commercial ties and sustain economic growth.

But the ambitious free-trade deal it agreed with the EU is now also at risk. And this is mainly — judging by remarks of EU officials — due to problems of Hanoi’s own making.

Concluded in December 2015 after three years of tough negotiations, the comprehensive FTA only comes into effect once it is formally ratified.

For the multifaceted EU, this ratification process is complex. The pact must be approved by the Council of Ministers and ratified by the European Parliament. If it is deemed to be a “mixed agreement,” it will have to be ratified not only by the EU’s legislative body but also by its member states.
Hanoi must improve its human rights

It is now apparent that EU ratification depends on whether Hanoi improves its human rights record. The proposed EVFTA makes an institutional and legally binding linkage to the EU-Vietnam Partnership and Cooperation Agreement (PCA), in which both sides pledge to respect democratic principles and human rights — a core component of the EU’s policies, initiatives and agreements.

It also states that a party may unilaterally take appropriate measures with respect to the FTA when “it considers that the other party has committed a material breach of the PCA,” such as violating the essential element constituted by the EU’s “human rights clause.”

This shows that the EU still strongly links trade liberalization to respect for human rights.

During a visit to the communist-run country last week, Bernd Lange, chair of the European Parliament’s Committee for International Trade, is said to have warned that the deal could be thwarted if the Vietnamese government fails to address the EU’s concerns over human rights.

A cross-party delegation of the EP’s subcommittee on human rights raised the same concern and made a similar warning when it traveled to the country seven months ago.

EU condemns prison terms for dissidents

Since then, it seems the Vietnamese government’s human rights record has not improved but worsened. The EU has strongly condemned the heavy prison sentences it has recently imposed on Nguyen Ngoc Nhu Quynh and Tran Thi Nga, two prominent rights activists.

The alleged kidnapping of Trinh Xuan Thanh in Berlin in July has complicated things. Though Vietnamese authorities insisted that the former state oil executive wanted for corruption returned to the country voluntarily, the German government said he was evidently abducted. That’s why it vehemently condemned the incident and threatened to revise its economic and aid ties with Vietnam if its demand for Hanoi to return Thanh to Germany isn’t met.

As Germany is the EU’s most influential member, many analysts believe the dispute could severely damage Vietnam’s relations with not only the world’s fourth-largest economy but also the 28-state bloc as a whole.

Without doubt, the Vietnamese government has its reasons to justify its crackdown on rights activists and political dissidents, who are often arrested and jailed for anti-state activities.

Thanh’s (alleged) abduction may be part of the intensive anti-graft campaign currently led by party chief Nguyen Phu Trong. Widespread corruption has also long been seen as a key threat to the one-party rule’s legitimacy and existence.

Yet, any gains from these activities will pale in comparison to the losses caused by the breakdown of the EVFTA.

Although just as with any FTA, some of its sectors may face disadvantages, Vietnam’s concluded FTA with the 510-million-people EU trading bloc will benefit the country enormously.

Not only will it eliminate more than 99% of customs duties on goods, the FTA, the most ambitious deal of its kind ever concluded between the EU and a developing country, will also open up Vietnamese services markets to EU companies.

Vietnam’s GDP could rise by 15% with deal

According to European Commission figures, it could boost Vietnam’s export-led economy by as much as 15% of GDP, with Vietnamese exports to the EU markets growing by more than one-third.

Vietnam gains from the FTA also because, unlike its relationship with other countries, such as China, the country’s economic and commercial ties with its third-biggest trading partner are very complementary.

The Southeast Asian nation’s major exports to the EU are telephones, electronic goods, footwear, clothing, coffee, rice, seafood, and furniture, which are its key industries, while importing from the world’s most advanced regional grouping the high-tech products that it needs.

Other factors explain why the EVFTA is vital for Vietnam.

It joined the 12-member TPP trade deal mainly because it needed better access to major markets. Vietnam’s need for access to the EU became crucial after the TPP was killed when President Donald Trump withdrew the United States from the Pacific trade deal.

Vietnam’s dependence on China would shrink

The FTA, now the most comprehensive trade deal Vietnam has signed or is negotiating, will enable it to diversify its trade and, thereby reduce its unhealthy dependence on regional powers, notably China, with which it suffers a huge trade imbalance.

According to its official statistics, in 2016 Vietnam exported US$34 billion of goods to the EU and imported $11.1 billion from the latter, while its exports to China stood at only $21.8 billion and its imports from its giant neighbor were valued at $49.8 billion. This means it enjoyed a $22.9-billion trade surplus with Brussels and a $28-billion deficit with Beijing.

The FTA with the EU, which is Vietnam’s largest non-Asian investor, also signals that the country genuinely seeks to carry out reforms, open up its economy and integrate into the international economy. This will attract new foreign investment that it urgently needs to sustain growth.

Because of these advantages, it is likely — if not essential — that the Vietnamese government will make concerted efforts to secure the EU’s ratification in the coming months.

Opportunities clear for EU exporters

The EU likewise has strong incentives to approve the deal. For instance, as emphasized by EU chief negotiator Mauro Petriccione, the FTA provides European exporters with great opportunity to access to a “vibrant economy of more than 90 million consumers.”

After Singapore, Vietnam is the second Southeast Asian country Brussels has concluded an FTA with and the grouping’s second-biggest trading partner in ASEAN. The agreement is seen as a stepping stone towards the pro-trade EU’s ultimate goal of establishing an FTA with the whole ASEAN region.

Nonetheless, due to asymmetries in economic size, levels of development, global status and reach, the $16,400-billion grouping is obviously more important to the $202-billion country than vice versa and this FTA is more vital to Vietnam than to the EU.

For instance, Germany is Vietnam’s top trade partner in the EU, with two-way trade totaling US$9 billion in 2016. Yet, Hanoi is a modest economic partner for Berlin. The world’s third largest exporter sold goods and services worth $1,270 billion last year.

If the EU insists that Vietnam improve its human rights as a condition for ratifying the deal, the Vietnamese government should address it. Respecting human rights, democracy, and rule of law will not damage Hanoi. It will, instead, enhance the ruling party’s image and legitimacy and the country’s reputation and prosperity.